Many people who would potentially benefit from a bankruptcy filing choose not to file or wait until they truly have no other options. They may waste thousands of dollars on fees and interest charges because of their delay. Yet, their hesitation is often understandable, as what bankruptcy entails and how it will affect someone financially are issues that are frequently misunderstood.
For example, many people fear the possible liquidation of their assets in bankruptcy. They don’t want to lose their homes, their vehicles or their other personal property. Although there are scenarios in which it is necessary to sell or liquidate resources as part of a personal bankruptcy filing, it’s important to understand that the vast majority of filers are empowered to protect all of their assets from liquidation during bankruptcy.
In a Chapter 7 bankruptcy
The type of bankruptcy most associated with asset liquidation is Chapter 7 bankruptcy. Some people even refer to Chapter 7 proceedings as liquidation bankruptcy. Thankfully, people can protect most or all of their property from sale during even Chapter 7 proceedings.
Those who file for bankruptcy have the option of exempting specific assets from liquidation based on federal or state statutes. They will have to submit an inventory of assets to the courts outlining what is exempt and what may be at risk of liquidation. Those who qualify for Chapter 7 proceedings can usually protect all of their assets with careful preparation. Asset liquidation is only necessary in a small minority of Chapter 7 filings.
In a Chapter 13 bankruptcy
People sometimes call Chapter 13 bankruptcy a wage earner’s plan because the process involves creating a repayment plan. The person filing will make three years or more of structured payments after which the courts may discharge the remaining balances on certain debts. One of the benefits of a Chapter 13 bankruptcy is that there is no risk of liquidation whatsoever, meaning that people can protect all of their resources so long as they successfully complete the process.
Bankruptcy exemptions may apply to home equity, vehicles and even retirement savings, as well as personal property. Seeking personalized legal guidance to learn more about the rules for personal bankruptcy may help people feel more confident about filing for this form of debt relief and taking greater control of their finances accordingly.